Another State Wants to Tax Ads: But Rhode Island Is the First State to Introduce a Bill Calling Exclusively for the Taxation of Newspaper Advertising

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But Rhode Island is the first state to introduce a bill calling exclusively for the taxation of newspaper advertising

As many states struggle to balance budgets without raising existing taxes, many legislative eyes believe they have spotted a previously untapped source of revenue, advertising.

In general, the states are looking toward the service industries which are the fastest-growing segment of the economy right now, according to Clark Rector, vice president of state government regulations of the American Advertising Federation.

Rhode Island's Senator John Bevilacqua introduced a bill on Feb. 14 requiring "newspaper classified and display advertising" to be subject to the state's 7% sales and use tax. It was referred to the state's Senate Committee on Finance.

The bill would apply to free standing inserts, advertising supplements, and such newspaper-carried publications as Parade.

"The timing couldn't be worse. It's most crippling when double digit losses in advertising revenues are being experienced by every newspaper in the state," said Dan O'Neil, advertising director of the Woonsocket Call.

"Being the smallest state in the Union, it makes it easy to seek a tax advantage by going this route. It makes sure tax revenues stay in the state because all the business is done within the borders. That's why newspaper advertising is an easy target," said Gary Lawrence, marketing director of the Newport Daily News.

Both O'Neil and Lawrence are opposing the proposed tax. The Rhode Island Press Association and the Rhode Island Advertising Club are also working to defeat the bill. John McCarthy, president of the Providence Advertising Club, said a lobbyist is being hired with money pledged by the ad club, individual agencies, the local broadcaster's association, the public relations society, various daily and weekly papers, and the Press Association.

The organizations are hoping to defeat the bill on constitutional and discriminatory grounds since it singles out only newspaper advertising, according to Matt Hayes, Rhode Island Press Association.

While Rhode Island is the only state so far to single out newspaper advertising, other states have advertising tax bills in the works that would affect the overall business of advertising, including ad agencies, broadcast and print media.

In Massachusetts, Rep. Alvin Thompson introduced legislation to impose a 1% tax on all advertising. The legislation stated specifically to "impose on the income derived from advertising in newspapers and magazines a 1% tax."

The Pennsylvania Council of the American Federation of State, County and Municipal Employees has requested the governor to tax advertising and other services. So far, neither the governor nor Legislature has expressed any interest in pursuing the tax.

In Nevada, a bill sponsored by the Legislature's Committee on Taxation would put on next year's ballot the question of establishing a broad-based services tax, which would include advertising.

Texas legislation is proposing a value-added tax for all goods and services from companies doing business in the state. A 1.5% tax would be applied against net income, compensation to employees, interest payments and depreciation, if any, for businesses, including agencies, advertisers, retailers and media operating in Texas.

In addition to Bevilacqua's legislation, Rhode Island's governor is putting together a tax package that is expected to include a broad-based service tax that would affect all advertising, Rector said. …